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After three months of investigating, the accounting firm trying to recover more than $200 million in cash and cryptocurrency owed to users of the now-defunct QuadrigaCX trading platform has turned up only $28 million in assets – virtually all of it in cash.

Ernst & Young, which is overseeing bankruptcy proceedings for the cryptocurrency exchange, has issued a trustee’s preliminary report saying it may not be possible to complete a full review of QuadrigaCX’s finances, mainly because of the company’s poor bookkeeping.

As well, the report says the investigation has been hampered by some of QuadrigaCX’s unco-operative business partners and the sheer volume of the transactions it processed since it was founded in 2013 by Gerald Cotten of Fall River, N.S.

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“These transactions measure in the millions,” George Kinsman, a senior vice-president with Ernst & Young in Halifax, said in an interview.

“At any given time in a restructuring, you have to do a cost-benefit analysis. If you’re going to have a team of forensic accountants spending a considerable amount of time (working) with no certainty that you’re going to have a recovery, people are going to have to think about whether that makes sense.”

As of last month, QuadrigaCX and its associated companies owed creditors $215.7-million, says the report, written by Kinsman.

A total of 76,319 unsecured creditors – virtually all of them QuadrigaCX clients – have come forward to claim they are owed $214.6-million, Mr. Kinsman’s report says.

The accounting firm says it is making progress in retrieving funds from Quadriga’s payment processors and other exchanges and it plans to file an investigation report within the next two months.

The online exchange, which was once one of the largest in Canada, offered a platform for trading and storing digital assets such as Bitcoin, Litecoin and Ethereum.

The cryptocurrency industry is not regulated in Canada, and there is no governing body providing industry oversight.

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By late 2018, QuadrigaCX had been having liquidity problems for almost a year, mainly because the accounts of one of its payment processors – holding $25.7-million – had been frozen by Canadian Imperial Bank of Canada.

The exchange was shut down in January 2019 amid a torrent of online speculation after Cotten died from complications of Crohn’s disease while travelling in India on Dec. 9.

The entire enterprise was thrown into a tailspin when it was revealed the 30-year-old chief executive was the only employee who knew the encrypted passwords to gain access to QuadrigaCX’s offline cryptocurrency reserves, stored in what are called cold wallets.

At the time, Mr. Cotten’s widow, Jennifer Robertson, produced an affidavit in Nova Scotia Supreme Court saying about 115,000 QuadrigaCX users were owed $190-million in cryptocurrency and $70-million in cash.

The company was granted court-ordered protection from its creditors on Feb. 5. The next day, Quadriga inadvertently transferred $460,000 in bitcoin to one of its cold wallets. Those digital assets remain off limits because no one knows the password.

In early March, Ernst & Young said several cold wallets had been found, but all of them were empty.

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As well, the accounting firm said 14 user accounts had been created internally using a number of aliases. Some of them were used to trade cryptocurrency, drawing from deposits that “may have been artificially created,” the accounting firm said.

Bankruptcy proceedings started on April 15 when it became clear the company would not survive a restructuring.

In a report released last month, Ernst & Young said it had determined Mr. Cotten was mixing his personal and corporate finances, saying some Quadriga funds may have been used to buy assets held outside the business.

The Nova Scotia Supreme Court later issued a asset-preservation order, which prevents Robertson from selling assets belonging to her or Cotten’s estate.

Those assets, which include properties and businesses, are thought to be worth about $12-million, the latest report says. But they are not considered QuadrigaCX assets.

Robertson is listed as a secured creditor who is owed $300,000.

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